Does Unlimited Vacation Time Really Work? And For Whom?

ForgetPing-Pong tables or in-house massages — the hot new workplace perk most likely to win the prize for “too good to be true” is unlimited vacation time. Many employees receive it with a mix of excitement and skepticism, while backers say it’s a great way for employers to show they truly care about — and trust — their people.

Unlimited vacation time has been making headlines after being adopted by high-profile Silicon Valley firms such asNetflix, LinkedIn and GrubHub. Some professional servicesfirms, such as Grant Thornton, have also jumped on the bandwagon. Still, unlimited vacation is mostly a perk for startups and smaller firms. Just 1 percent of the largest companies offer it, according to a survey by HR association WorldatWork.

The major exception is GE, which launched its “permissive approach to paid time off” in 2015 and now offers it to all of its salaried U.S. employees. That’s about 60,000 people, or nearly 60 percent of its total workforce.

The move is helping GE compete with Silicon Valley firms for talent as it transforms into a “digital industrial,” said Barbara Carmichael, manager of global benefits for GE in Norwalk, Connecticut. It also helps reduce administrative hassles for both GE and employees, as neither side needs to track days and match them with the traditional “sick,” “vacation” or “personal business” classifications in a traditional paid-time-off system.

Carmichael said the change is part of a broader HR effort to replace traditional annual reviews with a more hands-on approach that increases the frequency of dialogue between employees and their managers. “This benefit change supported our move toward a culture of flexibility,” she said.“Employees feel more empowered to do what they need to balance career, family and community responsibilities.”

A Perk Or A Clawback?

Unlimited plansappeal to financial managers because they remove a liability from a firm’s books, saidLenny Sanicola, senior practice leader for benefits and total rewards at WorldatWork. Under traditional plans, employees accrue vacation time that they can cash out upon leaving the firm. But with unlimited plans, there is no accrual and therefore no deferred compensation to cash out.

When a company switches from a traditional to unlimited plan, long-term employees may see it as a loss of that deferred compensation. Sanicolasaidcompanies that institute such policies should offer payouts of accrued time to tenured employees. In some states the law may require such payouts.

A deeper challenge with unlimited vacation is that it leaves employees to guess how much vacation their manager finds acceptable. In workplaces where job security is low or employee competition is high, employees may fear taking any time off, leaving them more stressed than ever.

Employers who don’t feel ready for an unlimited vacation policy may prefer a single paid-time-off (PTO) program, which ends distinctions between vacation, sick and personal days while retaining a cap on time off. A single PTO program increases flexibility while still keeping expectations clear, Sanicolasaid.

In August, fundraising platform Kickstarter replaced its unlimited policy with a 25-daycap. A Kickstarter spokesperson told BuzzFeed News that providing a specific number helped employees better understand how much time was appropriate.

How does GE deal with the expectations problem? GE’s HR policy states that employees who aren’t sure how much time to take off to “relax and rejuvenate” should use the amount of time previously available to them under the vacation plan “as a roughgauge.”

Under the old plan, new salaried GE employees used to get three weeks of vacation time. Employees report that they’re taking “a little bit” more time off now than under the old plan, Carmichael said.(Carmichael can’t say how much more, because GE no longer keeps track of vacation time.)

“Many have shared that they would hold on to vacation time just in case something came up,” Carmichaelsaid. “If they had children, for example, they would hold on to it in case the child got sick. Now they’re more likely to take the time when they need it.”

For companies looking at going unlimited, Sanicola suggests they set vacation expectations from the start. “Employees have to see senior leaders taking time off to step away and rejuvenate, and really promoting that idea.”

Trust Matters

Could unlimited vacation inspire employees to abuse the system and take too much vacation? GE says it still expects employees to “coordinate all time off with your manager, continue to meet your goals and maintain satisfactory performance.”

Unlimited plans are most readily adopted in workplaces where trust is already high and “presence and productivity don’t mean the same thing,”saidDavid Burkus, associate professor of management at Oral Roberts University in Oklahoma and author ofUnder New Management: How Leading Organizations Are Upending Business asUsual.

It’s also a more natural fit for salaried employees whose time isn’t already tracked. Burkus believes unlimited policies can and should be adapted to hourly and place-specific jobs. His book describes a hospital nursing team that achieved new levels of flexibility through close collaboration on scheduling.

Burkus saidunlimited vacation can help employers build trust, which he describes as a reciprocated relationship between employers and employees. “The majority of people respond to signals of trust with more trustworthy behavior,” hesaid. “We know from motivation research that when people feel trusted, it dramatically affects their feeling of autonomy. Autonomy tends to increase motivation and morale, and usually that correlates to increases in productivity and often to profitability.”

For more information and for more articles like this, visitadp.com/spark.

Richard Sine writes about business and personal finance from Washington, D.C.

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